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What is a Limited Liability Company?

A limited liability company, like a corporation, is a legal entity existing separately from its owners. A limited liability company is created when proper articles of organization (or the equivalent under the laws of a particular state) are filed with the proper state authority, and all fees are paid. State laws typically impose additional pre- or post-creation requirements as well.

A limited liability company is not a partnership or a corporation, but it (normally) combines the corporate advantage of limited liability with the partnership advantage of pass-through taxation.

The Organizational Structure of a Limited Liability Company.

A limited liability company is owned by its members, who may directly manage the limited liability company (member-managed), or who may appoint managers to directly manage the limited liability company for them (manager-managed).

The members may also apportion duties amongst themselves as they see fit, and may even appoint member(s) president, vice president, secretary and/or treasurer, with the appointed member(s) to have the duties normally associated with such title or titles.

One of the virtues of a limited liability company is the ability (in most states) to structure the limited liability company however its members want it to be structured.

The Advantages of Forming a Limited Liability Company:

The primary advantage of a limited liability company is the limited liability of its members. Unless they specifically personally guarantee them, the members are not liable for the debts and obligations of the limited liability company. In a partnership or sole proprietorship, creditors may seize personal assets of the participants to pay debts of the business.

Additionally:

Pass-through taxation is available, meaning that (generally speaking) the earnings of an LLC are not subject to double taxation, but are treated like the earnings from partnerships, sole proprietorships and S corporations.

The members have greater flexibility in structuring the limited liability company than is ordinarily the case with a corporation, including the ability to divide ownership and voting rights in unconventional ways, while still enjoying the benefits of pass-through taxation.

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